Financial independence has definitely been on my mind a lot lately. I even started a blog (this one) dedicated to it! Financial independence doesn’t have the same definition to everyone.
Some consider it similar to early retirement, and you are not working. Some are on the opposite end and think it means that you can choose when and where you work and be more focused on enjoying life. One thing that may be different for some is financial independence when it comes to debt.
Debt doesn’t always mean the same thing for everyone. Some categorize debt as good or bad and place a lot of value on interest rates. Some think that all debt is bad and must be paid off. So does a person eliminate all debt before they declare that they are financially independent?
Are you considered financially independent if you are taking advantage of low-interest rates and would rather invest your money?
For me, I would prefer to have all debt gone. I know that many say you should keep low-interest rate loans since you can earn higher than that in the market.
However, I would rather have complete financial independence and have no debt, especially not a mortgage. I would want my monthly expenses to be as low as possible, but still enjoy life. That means no mortgage and no car payments or anything else large.
Positives of eliminating debt
- Lower monthly expenses. Your housing expense most likely won’t be completely eliminated since you will most likely have to pay property taxes still, but you will still be cutting your expenses by a lot.
- More room in your yearly budget to do what you want. With debt, you might want to have more of a stable job, which might not equal financial independence for you any longer.
- Knowing that you paid it all with your current earnings can reduce the pressure to earn more to pay back debt. Also, you can get discounts when you pay in full. For example, according to cheapautoinsurance.net, you can avoid paying additional credit charges and save around five to 10 percent on your auto insurance when you pay in full.
Positives of keeping debt
- Might be able to earn more in the market and “make money” off your debt.
- Less net worth tied up in your home. If you truly needed to dip into your investments, then cash from housing may not be easily accessible.
Are you working on eliminating all debt?